The ISLM-FX Model under Fixed Rates
restart;
MPC:=0.80; GOV:=1900; TR:=0.20;
ER:=0.50; P:=100;
FP:=200; FY:=60000; FR:=0.06; 
FE:=0.50;
AD:={
 PC=MPC*(Y-NT),
 NT=TR*Y,
 GPI=2400-10000*IR,
 CA=300*ER*FP/P+0.02*ER*FY-0.1*Y,
 Y=PC+GPI+GOV+CA,
 MS/P=0.62*Y/P-200*IR, 
 IR=FR+FE/ER-1 
};
ADresult:=solve(AD, {Y, MS, IR, PC, GPI, NT, CA});
Assignment:

1)  Using Maple, solve for the above model.  Because the system is nonlinear in some variables (i.e., the exchange rate ER), there may be more than one set of solutions, and you will need to pick the right set.  You will know which is which by the solution values.

First, solve for the initial equilibrium.  Then in each case:

Shock (a) - Increase GOV from 1900 to 2000.
Shock (b) - Increase ER and FE both from 0.50 to 0.55.
Shock (c) - Increase FE only from 0.50 to 0.55.
Shock (d) - Increase P from 100 to 110.
Shock (e) - Increase FP from 200 to 220.
Shock (f) - Increase FY from 60000 to 66000.
2) For each of the above shocks, explain your results with words and appropriate graphs (i.e., the ISLM-FX model), and explain the directional change of the main endogenous variables (Y, IR, ER, CA). What does the difference between (b) and (c) tell you about the difference between an anticipated and an unanticipated devaluation?  How are the results for the other shocks different from those under floating rates?